10 Oil and Gas companies to follow in 2021
What a year for Oil and Gas companies! The year 2020 has been unlike any other, with Covid-19 economic restrictions hitting oil demand hard and OPEC+ disagreements contributing to a plunge to an unbelivable negative Oil price. But the rollout of vaccines in the U.S. and Europe offers hope for a fresh start in the new year and a rebuild of the economy.
The question is whether the usual process of juniors exploring in the hope of being taken out by bigger fish will continue if BP, Shell and others do not have the same hunger for reserves as before. At the microcap level though, speculation will surely continue, but the question is whether retail investors can still dip a toe in oil and gas companies in the hope of multiplying their money or getting a healthy payout. We believe so, and are looking for a $55-$60 Oil price come the end of 2021.
As our New Year gets under way, there’s still plenty of uncertainty about what the next 12 months may hold for investors, but here at @TMsreach we look at 10 Companies that should be worth following over the next 12 months.
Companies covered include : #BLOE #ECHO #ECO #HTG #NTOG #PFC #PPC #PXEN #UJO #ZPHR
Block Energy
Block Energy (AIM:BLOE), the UK-based oil and gas production and development company focused on the country of Georgia, has had a quietly productive year, bookended by significant announcements
Block listed in 2018 with the intention of growing organically through the patient development of a cluster of assets near Georgia’s capital city Tbilisi, notably the West Rustavi field, which produced 50 Mbbls of light sweet crude during the Soviet era. The company’s premise was the bringing of contemporary drilling technology to Georgia to open up the field’s 38 MMbbls of 2C contingent resources of oil and 608 BCF of 2C contingent resources of gas.
Last year’s drilling campaign yielded disappointing results, with operational issues impacting two key wells, and a third failing to meet expectations. But an unexpectedly high gas-to-oil ratio offered tantalising indications of West Rustavi’s potential as a gas field, prompting Block to accelerate the company’s gas offtake strategy. An agreement was reached with a Georgian operator for the offtake of West Rustavi gas, and the infrastructure completed this autumn, with a view to serving Georgia’s strong energy market: the country relies on gas for 40pc of its total energy use and is keen to break its dependence on Russian gas.
Earlier this year Block secured a potentially transformative deal with Schlumberger to acquire licences formerly operated by the oil giant immediately adjacent to West Rustavi. The new fields increase Block’s acreage by more than 30 times, boost the company’s production by more than 200 bopd, and open a wealth of fresh opportunities: the assets include Block XIB, Georgia’s most productive block, and increase the company’s 2P reserves of oil and gas by 64 million boe, 2C contingent resources by 29 million boe, and prospective resources by 245 million boe. Block completed the acquisition in November, and completed a £5.28 million fundraise earlier this month for the exploration of its new assets and continued development of West Rustavi.
After a rocky 2019 Block Energy has consolidated its presence in Georgia this year, and with funding secured for the development of its greatly expanded asset base – and a share price hovering around 3p – may well be one to look out for in 2021.
Echo Energy
Echo Energy Plc (AIM:ECHO), a gas-focused exploration and production company with assets in southern Argentina, ended a tough 2020 with a series of strong operations and financial updates.
Echo has assembled a set of full-cycle assets carefully balanced between exploration and production on the bleak, beautiful tundra of Patagonia. The company holds a 19pc interest in the Tapi Aike exploratory licence, a cluster of gas discoveries left undeveloped since the 1970s. Echo has used legacy data and newly acquired 3D seismic to identify more than 40 leads across the field, which has gross unrisked prospective resources of 6.0 Tcf (Pmean). Plans have been outlined for the first exploration well.
Echo also has a 70pc interest in the Santa Cruz Sur licence, which has 12 producing oil and gas fields with 1P reserves of 4.3 MMboe, and 2P reserves of 13.7 MMboe. Both licences are served by robust existing infrastructure allowing the timely delivery of oil and gas to local, domestic and international export markets.
The pandemic had forced the shut-in of certain Santa Cruz wells, but an operational update earlier this month detailed their gradual path back to production. Operations elsewhere at Santa Cruz have continued without interruption through the year: average daily production (net to Echo’s 70pc interest) for the period from 1 January to 17 November 2020 was 1,990 boepd (including 10.3 MMscf of gas).
Finance has been a concern for Echo this year, with the company working hard to secure funds to continue its scheduled programme into 2021. Another announcement this month set out the terms of an agreement reached with lenders to conditionally restructure the company’s EUR 5.0m 8.0pc secured convertible debt facility, extending the maturity to April 2025, and thereby ‘releasing capital which can instead be invested directly into the business to accelerate growth projects or support future acquisitions.’ The same update also announced the successful completion of a fundraise to raise gross proceeds of £0.7m in early December to be applied to ‘a range of near term E&P growth projects within the existing portfolio designed to deliver production uplift which will serve as a platform for cash generation to underpin future growth’ and an additional £0.8m last week to add to the companies working capital resources and be applied towards a range of near term growth projects within the existing portfolio designed to deliver production uplift in response to improved market conditions.
Echo is an early mover in the relatively underexplored South American basin. With a share price that hasn’t moved much beyond 0.5p since oil shares plummeted in the spring, it’s one to follow should the company’s leads begin to show their promise.
Eco (Atlantic)
With significant interests in waters off the coasts of Guyana and Namibia, fast becoming focal points for the industry, Eco (Atlantic) Oil & Gas (AIM:ECO) is arguably one of the most undervalued hydrocarbons stocks.
Eco has a 15pc stake in the Orinduik licence offshore Guyana, in which Total and Tullow Oil also have interests. A February CPR estimated Orinduik may hold 5.14bn barrels of oil (p50), a net 771m due to Eco. Analysis last November indicated the reservoir to have a heavier grade than expected, with high levels of sulphur, which the markets greeted with some disappointment, bringing Eco’s soaring share price crashing down. Eco has countered that the crude tested to date appears not dissimilar to the commercial heavy crudes currently in production in the North Sea, the Gulf of Mexico, Brazil, Venezuela and Angola, a view accepted by analysts at Peel Hunt, who regard Eco’s 2021 Guyana drilling programme as one of the new year’s most exciting prospects.
Eco also has 47.2pc to 85pc working interests in four licences in the highly prospective Walvis Basin off the Namibian coast, which were successfully reissued in November. Collectively, the licences cover more than 28,500km2 with the potential for more than 2.36bn boe of prospective P50 resources, and make Eco the second largest operator in the Basin after ExxonMobil. Other majors including Total and Shell are moving into this giant Cretaceous play, which offers a potential two billion barrels of oil.
In its interim results published last month Eco stated it is fully funded for its share of the forthcoming Orinduik drilling programme, with cash of $17.2m, and no debt. The company has undertaken similar pandemic cost-cutting exercises to its peers, reducing general and administrative costs by some 70pc compared to the same six month period in 2019.
In September Peel Hunt gave Eco a 100p price target, against a prevailing market price of 22.7p per share. We stand by our July view that, with the price still at a similar level today, the company looks significantly undervalued.
Hunting
Downhole tools and services provider Hunting Plc (LSE:HTG) is struggling towards the light after a traumatic year in which it shed a third of its workforce and plumbed its lowest share price for 16 years.
Though Hunting has a well established international presence it has a significant customer base within the onshore US oil and gas industry, which has been hit particularly hard this year. By October the company’s share price had fallen from January levels of around 400p to 122p, in the wake of a the announcement of a radical consolidation programme encompassing 600 redundancies, the closure of its Canadian manufacturing operations, and the partial divestment of its drilling tools business.
But a year-end trading update published on 17 December confirmed the tentative signs of recovery Hunting had begun to show in the third quarter. As at 30 November 2020 the company’s stringent efforts to streamline its working capital had secured some $81m in annualised savings and a cash and bank position of $94m. EBITDA was around $26m, though Q4 2020 is likely to report a small EBITDA loss as the improving US onshore market is offset by lower international activity, primarily in the company’s North Sea market. Inventory levels have been whittled down, and are forecast to be just under $300m by the end of the year, and the company has extended its considerable downhole IP portfolio.
CEO Jim Johnson said: ‘As the Group approaches the year-end, market indicators including the WTI oil price, the onshore rig count and the number of active frack crews in the US, have all shown modest increases throughout the quarter which will support activity levels going into the New Year.’
Much will depend on the stability of the US onshore industry’s recovery. The WTI benchmark has risen above $45 lately, buoyed by news of a vaccine and – critically – hopes that Opec will continue to curb supply through 2021. Though there should be no expectation that the US fracking industry will approach its former growth rate, a sustained recovery would augur well for a continued rise in the company’s share price, which has climbed to 200p over the past couple of months. It should also be noted that at its weakest moment last year Hunting was still able to return a dividend, paying out some $3.3m.
Nostra Terra Oil and Gas
The woes of the Texan oil industry this year have been well documented, with the fast-and-loose philosophy of swathes of the US fracking sector being cruelly exposed by plummeting prices.
The Nostra Terra Oil and Gas Company Plc (AIM:NTOG) is one relatively new operator in the region seeking to model a rather more disciplined growth strategy than others. An exploration and production company with assets in the Permian Basin and East Texas, Nostra looks for low-cost acquisitions in proven production areas suitable for the application of cutting-edge drilling techniques, able to reach into compartmentalised reservoirs and thereby scale production efficiently.
The company’s core asset is a 100pc working interest in the Mesquite asset located on the Eastern Shelf of the Permian Basin, which has estimated recoverable reserves of 2.4mmbbls. Nostra also has a 100pc interest in Pine Mills, a 2,400-acre producing oil field located in Wood County, eastern Texas. And in September the company acquired a 100pc interest in the Caballos Creek oil field in South Texas, with proven wells whose life may extend for some 16 to 32 years.
Nostra’s interim results tell the story of a year of two halves. The company endured tough times as the pandemic and Opec price war hit, temporarily suspending production to conserve capital, and embarking on a programme to slash corporate overheads by 60pc. Revenues to 30 June were $417,000 compared to $947,000 the previous year, and an operating loss of $115,000 for the period was recorded compared to a $106,000 profit for the previous year. The company’s difficulties were compounded by a shareholder challenge to management which was ultimately defeated by a four to one margin.
But the oil price crash had an upside for Nostra, giving the company opportunities to pursue its strategy of expanding its low-cost, low-risk production portfolio during a time of lower asset valuations. In April the company negotiated a farm-in according to which a third party will fund a new well at Pine Mills, with Nostra taking a 32.5pc working interest. And in September the company acquired the Caballos Creek oil field – an updated reserve report will follow after an ongoing review – and signed a farm-in agreement for an additional asset near its Permian Basin operations, with 15 existing wells and opportunities for new, low risk development wells.
Nostra also took steps to shore up its finances, raising £318,055 through an April placing, and another £500,000 through a September fundraise. Rising oil prices promise to make a big difference to company’s margins, an update earlier this month acknowledging that ‘the increase in oil prices from $40 to $45 has a significant impact on margins and cashflow to Nostra Terra.’ Nostra is now cash flow positive with the increase in the Oil price, which many seen to have missed.
With a share price of just 0.4p Nostra may be of interest to investors seeking to revisit the opportunities that continue to exist in the Permian Basin.
Petrofac
Oilfield services group Petrofac (LSE:PFC) has implemented a severe – and ongoing – cost savings programme through 2020 that may well be rewarded under more favourable conditions next year.
The company, which designs, builds and manages infrastructure for the oil and gas sector, is a well established contractor for national oil companies across the world, particularly those in the Middle Eastern and North African markets.
A pre-close trading update published on 16 December told the story of Petrofac’s tough 2020. The company expects revenues of $4bn this year, down from $5.5bn in 2019, and warned that the profits to be presented next February in its full-year results will be ‘materially lower’. Costs will be cut by a further $250m next year, on top of this year’s $125m reduction. (The company suspended its dividend this year and is slashing its 11,500-strong international workforce by a fifth.) It’s order backlog at the end of November was $5.1bn, down from $7.4bn at the end of 2019. And this year’s orders are down from more than $3bn in 2019, to $1.4bn.
But Petrofac insists that trading for 2020 was ‘in line with expectations’ in a ‘difficult environment’. CEO Ayman Asfari, stepping down after 30 years service, said the latest efficiency measures, ‘together with a strong bidding pipeline, our long-established position in attractive markets, our track record for delivery and a sharp focus on competitiveness – will position us well for opportunities when the market recovers.’
And Petrofac does indeed have a promising order book for the coming year, with $3bn of secured revenue, and a pipeline of around $42bn bids scheduled for award. The company’s share price has tumbled from more than 400p at the start of the year to around 165p, but that represents something of a recovery from a low of 106.5p in September. It rise considerably further if 2021 proves that Petrofac has indeed weathered the worst of the storm.
President Energy
President Energy Plc (LSE:PPC), the oil and gas exploration and production company focused on Argentina, succeeded in keeping its promise – which we reported in April – to significantly increase its production this year.
An operations update published earlier this month announced that President’s net production has now reached 4,000 boepd, more or evenly split between oil and gas, up from the average of 2,747 boepd reported in the company’s 30 June interim results, which itself was already an increase of 14pc over the 2019 rate. Most of the increase was secured through a new 16 km sub-surface gas pipeline connected to the company’s Estancia Vieja gas field, which has allowed an increase in gas production of up to 2000 boepd.
Other operations progress includes plans for the drilling of two or three vertical development oil wells in 2021 in the Dos Puntitas field, part of the Puesto Guardian concession, drilling at its Rio Negro licence, and the acquisition of an exploration block at Angostura. The increase in production dovetails with recent increases in both the oil price and Argentinian gas prices: the company received more than $40 per barrel for its December production for the first time since March, with spot gas prices reaching $2.10 per MMBtu.
President’s interim results reported a positive adjusted EBITDA and free cash generation from core operations and finance income. EBITDA was $1,049,000 (2019: $7,931,000) and cash $5,916,000 (2019: $9,750,000). Those figures reflected the company’s efforts to slash administration costs by 31pc.
President has been dogged by investor caution regarding Argentina’s perennial debt crisis, which continues to threaten devaluation of the peso. But this year the country did successfully restructure $65bn of foreign debt with private creditors, and is in negotiations to repay a $44bn IMF loan. Argentina also showed its commitment to the country’s oil and gas sector – revenues from which it hopes will help pay down the national debt – through a scheme to fix local oil prices at $45 a barrel.
Trafigura, the commodity trading and logistics giant, demonstrated confidence in President, and its position in Argentina, earlier this year by becoming the company’s second largest shareholder, with a 16pc stake. In light of President’s dogged performance this year we repeat the suggestion we made earlier this year that the company’s share price, currently hovering around 1.6p, may be considerably undervalued.
Prospex Energy
Prospex Energy Plc (AIM:PXEN) – renamed this year from Prospex Oil and Gas Plc – looks like a solid low-cost bet for investors seeking exposure to continental Europe’s oil and gas sector.
The company is open to low capex European investment opportunities with ‘a particular preference for late stage, drill-ready exploration; reworking of existing fields; or failed exploration targets where new ideas and the latest technology can be applied’.
It has acquired three assets so far. This year Prospex took a 49.9pc interest in southern Spain’s El Romeral gas power project, which encompasses three producing wells with gross 2P reserves of 0.30 Bcf, 11 prospects with 90 Bcf of gross un-risked prospective resources, and an 8.1 MW power station complete with a General Electric contact.
Another Spanish asset, the Tesorillo Project in Cadiz Province, has estimated gross unrisked prospective resources of 830 billion cubic feet of gas, and two petroleum exploration licences. Several potential gas targets have been identified through interpretation of legacy 2D seismic data.
Prospex also holds a 17pc interest in the Podere Gallina permit in Italy’s prolific Po Valley Basin, a proven hydrocarbon system where more than 5,000 wells have been drilled. The company expects first production at the permit’s Selva Malvezzi gas field at an initial rate of up to 150,000 scm/day in H1 2021. Podere Gallina has 13.4 BCF P50 reserves, gross contingent resources of 14.1 BCF 2C, and gross prospective resources of 88.2 BCF best estimate.
In its half year report the company stated a total asset value of £6,202,327. £720,000 was raised earlier this year for the El Romeral acquisition, and a further £215,000 through the sale of a 50pc interest in the EIV-1 Suceava concession in Romania.
In the report, Managing Director Edward Dawson said: ‘Prospex is not just an asset play but a revenue growth one too. Starting with first gas at the Selva field in Italy in H1 2021 and the transfer of a 49.9% interest in the El Romeral project to our Spanish affiliate, our annual production could reach 7,800,000 scm net to Prospex in 2021. This would translate into a significant revenue stream even at current gas prices, which in turn will enable us to pursue the additional prospectivity and opportunities that have been identified across our asset base.’
Prospex Energy PLC also announced, further to previous notifications, that regulatory approval has been received for the acquisition of a 49.9% interest in El Romeral, an integrated gas production and power station operation in southern Spain. More good news for Team Prospex.
With a share price hovering around 1.90p Prospex is developing a set of assets that bear close scrutiny for those looking for a relatively unheralded value stock.
Union Jack Oil
Union Jack Oil (AIM:UJO) has weathered 2020 better than most in the sector, patiently developing three flagship assets in the East Midlands, Humber Basin and East Yorkshire.
The company has increased its interest in the PEDL253 licence at Biscathorpe to 30pc, a field on-trend with the Keddington, Saltfleetby and the Louth and North Somercotes gas prospects, with an upside case of 6.69 MMbbls, and is planning a side-track to the licence’s Biscathorpe-2 well. It has also increased its interest in the PEDL180 and PEDL182 licences at Wressle to 40pc, with workover operations planned for Q1 2021.
But Union Jack’s most significant news came earlier this month, with the announcement that drilling at its WNB1Z appraisal well in the PEDL183 licence at West Newton, in which the company holds a 16.665% interest, has encountered a 62 metre hydrocarbon bearing reservoir in its primary ‘Kirkham Abbey’ target formation, significantly above expectations. With wireline logs observing good porosities of up to 14pc, and no sign of water incursion, it could be the most significant UK onshore discovery since the early 1970s.
The WNB1Z well is some 2.5 kilometres south of the licence’s WNA-1 discovery and WNA-2 appraisal wells, which are on-trend with the offshore Hewett gas complex. Union Jack is currently assessing the correlation between the WNA-1, WNA-2 and WNB1Z well results in advance of an anticipated West Newton testing programme. Other positive West Newton news includes the securing of approval for well testing at WNA-2, and the award of an AA rating for the licence’s carbon intensity – important given the political issues that attend onshore drilling in the UK.
Union Jack is well funded for its current drilling and development programme, having undertaken a placing of £5m earlier this year: as at 30 June this year the company had a cash balance of £4,621,774. Given the company’s strong news flow and healthy financial position, and a share price of 0.16p that may not fully reflect the latest West Newton discovery, we see no reason to change our observation earlier this year that Union Jack is one to watch.
Zephyr Energy
Zephyr Energy (AIM: ZPHR), formerly known as Rose Petroleum Plc, invests in oil and gas interests in the Rocky Mountains, seeking in particular – as the company’s website puts it – ‘choice assets at attractive valuations from distressed industry participants’.
Zephyr’s principal asset is a 75pc working interest in a 20,000 acre leaseholding at Paradox Basin, Utah, a licence carried over from Rose Petroleum. Earlier this month the field’s first well was spudded ahead of schedule, with the objective of acquiring up to 100 feet of continuous core from its Cane Creek reservoir, and running a comprehensive well log suite across the entire Paradox formation, which includes at least five other potential reservoir zones. Operations are expected to take just over a month, with results from the analysis of the core and logs available within three months later.
Zephyr has secured support for the campaign from the US Department of Energy, which is contributing $2m towards the cost as part of a research programme to increase geologic understanding and industry awareness of the Paradox Basin. Zephyr concluded a £2.25m fundraise in October to cover further operations costs.
The company’s other interest is an option for an initial transaction in the Denver-Julesburg Basin spanning Colorado and Wyoming, a region of increasing interest to operators employing horizontal drilling techniques. Zephyr would gain participation, as a non-operated working interest owner, in a two-mile lateral development project operated by Great Western Operating Company, where drilling is expected to start in Q1 2021.
It’s early days for Zephyr Energy, but with a share price of just 0.4p this is an investment to bear in mind for those seeking exposure to a prospective region of the US with less competition and lower acreage costs than the larger and better known Permian Basin, Eagle Ford and Bakken plays.
